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Daily Forex Technical Report − Dollar Recovers as Yen and Sterling Weakens

Mon, Nov 13 2006, 15:21 GMT
by ActionForex.com Team

ActionForex.com

Forex Mid-Day Technical Report

Dollar Recovers as Yen and Sterling Weakens

Dollar continues to recover from last Friday's low against majors and as near term resistance was broken, a short term bottom should be formed already and more consolidation will likely follow as a week with heavy US economic calendar goes. The Japanese yen weakens after ruling LDP policy chief Shoichi Nakagawa said that he opposed to BoJ rate hike as deflation is not over yet and and the impact of a rate hike would be "large". This is echoing comments from former Financial Services Minister Heizo Takenaka said in news reports today that higher rates from the Bank of Japan would harm the economy. Next focus will be on the Q3 GDP data in the coming Asian session for evidence on whether the Japanese economy has slowed.

On the other hand, Sterling was pressured after PPI output rose merely 1.7% yoy, slowest since Mar 04 and below expectation of 1.9% even though PPI input dropped less than expected by 0.1% in Oct. There were speculation that BoE will raise rate only one more time in the current cycle. However, with the BoE inflation report due on Wed, we believe the current retreat is more due to profit taking ahead of this key report rather that then disappointment in PPI.

Read full report (EUR/USD, GBP/USD, USD/CHF, USD/JPY) here.

EUR/USD

Daily Pivots: (S1) 1.2812; (P) 1.2855; (R1) 1.2884; More

EUR/USD's drop below 1.2820 cluster support (38.2% retracement of 1.2681 to 1.2899 at 1.2816) together with bearish divergence condition in 4 hours MACD indicates a short term top should be formed at 1.2899 already, after touching trend line resistance (from 1.2978 to 1.2937, now at 1.2982). At this point, further consolidative is in favor to continue with risk of pull back towards 1.2744 cluster support (38.2% retracement of 1.2483 to 1.2899 at 1.1.2740) or lower. But, we'd expect downside to be contained well above 1.2641 cluster support and bring rally resumption. Above 1.2876 minor resistance will indicate retreat has finished and bring retest of 1.2899 high.

In the bigger picture, current rally from 1.2483 might represent the start of resumption of medium term up trend from 1.1639. Hence, further rise is expected to follow towards 1.2978 resistance (this year's high). Decisive break of 1.2978 will be the confirmation that medium term up trend has resumed for next upside target of 78.6% retracement of 1.3668 (04 high) to 1.1639 (05 low) at 1.3234.

On the downside, a break below 1.2641 cluster support (61.8% retracement of 1.2483 to 1.2899 at 1.2642) is needed to indicate rise from 1.2483 has completed and shift favor back to the case that consolidation from 1.2978 is still in progress. Otherwise, current rally is expected to resume after the pull back.

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Published on  Mon, Nov 13 2006, 15:25 GMT